Increasingly, the Ryanair dispute has the appearance of a power struggle. It seems like more than a dispute over pay and conditions. ICTU has lobbed some big shells and the Ryanair management has dug in. It may become as classic a story in industrial disputes as that of Ryanair's model, Southwest Airlines of the US, is a classic case of successful business strategy.
One thing is clear not all the power that is latent will be wielded. Unlike what could occur in the United States, the 34 per cent share holding floated last year will not be, and cannot be, a factor, unless earnings are directly affected. This situation provokes some fundamental questions.
The question of what is power, how it is won and exercised is basic. A generally civilised society like ours doesn't have to confront the brutal simplicity of Mao's "power stems from the barrel of a gun". That is, until murders in the North defy democrats to prove Mao wrong. In peaceful times, it's more banal: we think of money as power.
Some people rail against money as power, mainly because money is incorrigibly undemocratic. Others ignore it and get on with life as best they can. Those in the middle try to ensure somehow that private power is used responsibly.
Pension funds in Ireland have assets of around £25 billion, roughly 60 per cent of GDP. You would be hard pressed to find any Irish cosy cartel, clubby clique or golden circle with assets anywhere approaching that figure. If pensions coverage of employees were more than the 52 per cent reported in 1995, as recent governments rightly wish, pension assets would be even larger.
These pension assets are obviously very powerful in the economic sense. As things stand, under pensions schemes trustees' obligations, they are invested with the mandate to secure the best financial return for the pension scheme. The latent power of these assets has so far been deliberately limited in scope, and quite plausibly so. Pensions are generally seen to be too important to mess around with. But not so in the US where political power is wielded in every way possible. The US is the home of the business entrepreneur, but also of the political entrepreneur. If there is a source of power, political entrepreneurs will tap it. The result is that US pensions schemes are beginning to exercise a lot more power than that which comes from the exclusive pursuit of capital gains and dividends.
Members and trustees of US pension funds have used their status as powerful investors to make demands of the companies they invest in. Campaigns are mounted to have pension funds pursue ethical investments or particular political agendas. Last year, the $225 billion (£165 billion) US pension fund, the Teachers Insurance & Annuity Association College Retirement Equities Fund, made forthright representations to Heinz about its board membership. Here in Ireland, we can remember US campaigns in the 1980s to have pension funds invest in companies following the MacBride principles in relation to investments in Northern Ireland. The degree to which institutional investors, like pension funds, should be activist about corporate governance standards or ethical/political causes is already a big issue in the investments world. It is one which will have increasing and wider prominence as pension funds, properly, continue to increase.
At present, in Ireland, there is very limited scope for pension fund members to exert any influence over investment decisions. Some 75 per cent of pension schemes of under 100 members and 60 per cent of more than 100 members are managed by external fund managers.
To store up a wealth of political and social power, but organise rules so as to limit its scope seems unsustainable. Pension funds make capitalists out of ordinary people, but it seems implausible that ordinary people in a vibrant democracy will in the long run permit substantial power to be exercised in a limited way on their behalf. The greater empowerment of pension scheme members is a growing trend.
In the medium term, political entrepreneurs will be pressurising to tap the power of pension funds. The reaction of pension funds managers and trustees over time is likely to be one of anticipating changes and gradual accommodation. We saw an example when the government, a few years back, sought to influence pension fund managers to invest more in Irish businesses. So, for the present, in a case like Ryanair, "nonmarket" power is more capable of being exerted by consumer boycotts (as in the Brent Spar Greenpeace case) than by institutional investment conditionality. Ryanair may be pleased that it has faced neither of these. But the future looks different.
Oliver O'Connor is an investment funds specialist
